Big things are happening in Economy

16/01/2016

Big things are happening in Economy beneath the surface.
A. The technological revolution. Alternative energy sources, new nano-technology materials, e-economy mainly services but also production management, etc. Te only economic field that did not participate in this e-economic revolution is real estate and agriculture. Buildings and agriculture still need the same land, and it is becoming more and more scarce. The price collapse of oil and other raw materials is a result of this e-economy.
B. Money printed by governments to purchase government securities, that started in US, is now happening in Euro-zone and Japan.
C. The Chinese Yuan will become eventually a world currency. Then to prevent capital runaway to US and Europe, they have to improve the transparency of their political and legal system. No modern economy can thrive without faith in fairness of the political and legal system. In the near future i would rather expect a revaluation of the Chinese currency than a devaluation.
D. Chine is fast to adopt new economic trends. Since the consumers markets of US and Europe stopped to grow, there is no place for its additional export oriented products. After 2008 it focused its over production to major infrastructure projects, the white elephant projects showed this policy also has its limits. So their new 10 years plan is inward oriented emphasizing environment, living standard of Chinese citizens and technology-science development.
E. The cash money flood filling the banks vaults or rather the central banks vaults where they are deposited, is a big mystery to what direction it will blow up. The banks are in these days in process of restoring their equities according to Basel III accord requirements. http://www.basel-iii-accord.com/
Since equity can be created out of profit or new capital influx, and at today’s interest rates the profitability of the banks is reduced, and so are the chances for new capital raising the only option for the banks left is credit squeeze. Viz.; http://qz.com/163160/the-euro-zones-credit-crunch-will-get-worse-before-it-gets-better/http://value4risk.com/the-mispricing-of-financial-institutions-tail-risk/
This process will end sometime in 2020. What then? By then the non financial institutions will learn to find capital from other sources. http://value4risk.com/wp-content/uploads/Screen-Shot-2015-08-20-at-9.17.05-AM.png
So when in 2020 the bank wake-up day will come, what will the banks do? They will have the capacity and liquidity to credit policy ease, but there will be less need for their money in economy with demographic collapse in Europe, China and Japan, when technological innovations channel the economic activity to products free of charge or cheaper and cheaper. Then we have the corporations with mountains of equity and liquidity due to reduced investment rates. To this have to be added the cheap money policy of close to zero interest rate, that will be hard to change due the liquidity in the financial but also non financial institutions. The banks will be able to keep their funds in the central banks vaults, or invest into the real estates, that still represents certain level of perspective for profitability.
Conclusion. The E-economy is an economy where bigger and bigger part of economy are channeled out of the conventional economic institutions. It is global, partly free of charge and hardly registered in official statistics. So the GDP figures will hardly grow and so the taxes.